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Published on 5 April 2025

Converting a Private Company to a Limited Liability Partnership: A Comprehensive Guide

Conversion of a Private Company to a Limited Liability Partnership (LLP)

Converting a private company into a Limited Liability Partnership (LLP) involves specific criteria and a detailed process to ensure compliance with legal requirements. This guide outlines the essential conditions and steps for this conversion, as well as relevant tax implications under the Income Tax Act.

Conditions for Conversion

Before initiating the conversion, make sure the following conditions are met:

  1. No Active Security Interest: There should be no active security interest on the company's assets at the time of application.
  2. Shareholders to Become Partners: Only the shareholders of the converting company may transition to partners in the LLP.
  3. Pending e-Forms: Ensure there are no pending e-Forms related to payments or processing.
  4. Statutory Filings: At least one Annual Return (MGT-7/7A) and Financial Statement (AOC-4) must have been filed by the company.
  5. Ineligibility of Section 8 Companies: The converting company must not be a Section 8 company.
  6. Share Capital: The company must possess share capital.

Steps to Convert the Company into an LLP

Here’s a structured process for converting your private company into an LLP:

  1. Pass a Board Resolution: The first step is to pass a board resolution to reserve the name of the LLP.

  2. Reserve the LLP Name: File Form RUN LLP to reserve the LLP name. This application must include:

    • Signed application for conversion by authorized directors.
    • Consent from all shareholders of the private company for the conversion.
    • A board resolution supporting the conversion.

  3. File Conversion and Incorporation Forms: After receiving name approval, file:

    • Form 18 (conversion form)
    • FiLLiP (incorporation form)
    • Consent from designated partners in e-Form 9.

  4. Complete FiLLiP Form: Fill out the FiLLiP form as you would for an LLP incorporation.

  5. Submit Form 18: After successfully filing Form FiLLiP, submit Form 18, which requires details like pending cases, total assets, financial assets, and total revenue.

Required Attachments for Form 18

Ensure to include the following documents with Form 18:

  • Statement of Assets & Liabilities certified by an auditor (not older than 15 days).
  • Auditor's certificate confirming no secured creditors exist.
  • Auditor's statement certifying that the company is not engaged in Non-Banking Financial Company (NBFC) activities.
  • Certificate of accurate shareholding from the auditor.
  • List of secured creditors with their consent; if there are none, provide an affidavit instead.
  • Approval from any specific regulatory authority if the company operates under one.
  • Latest income tax return.
  • Declaration from shareholders regarding the absence of secured creditors.
  • No Objection Certificate (NOC) from shareholders for conversion.
  • Part B statement listing all shareholders.
  • Additional documents as requested by the approving authority, such as the latest Annual Return, audit report, ADT-1 form for statutory auditor appointment, and an Ordinary or Board Resolution for auditor appointment.

Upon completion, the Registrar of Companies (ROC) will issue a Certificate of Conversion in Form 19. Subsequently, file the initial LLP Agreement in Form 3 within 30 days of conversion.

Exemptions from Capital Gains Tax under Section 47

Section 47(xiiib) of the Income Tax Act provides an exemption from capital gains tax on conversions of companies to LLPs, provided the following conditions are satisfied:

  • Asset and Liability Transfer: All assets and liabilities of the company before conversion become those of the LLP.
  • Shareholders as Partners: All shareholders immediately prior to conversion must become partners in the LLP, maintaining their capital contribution and profit-sharing ratio equivalent to their shareholding.
  • No Immediate Consideration: Shareholders should not receive any consideration or benefit outside of profits and capital contributions in the LLP.
  • Profit Sharing Ratio: The profit-sharing ratio of shareholders in the LLP must not drop below 50% during the five years following conversion.
  • Sales and Turnover Limit: The company’s total sales or turnover must not exceed ₹60 lakhs in any of the three years preceding the year of conversion.
  • Asset Value Limit: The total value of the company's assets, as reflected in the books, must not exceed ₹5 crores during the preceding three years.
  • Profit Withdrawal Restriction: No payments from accumulated profits may be made to partners for three years post-conversion.

By adhering to these guidelines, you can navigate the process of converting a private company into an LLP efficiently, while ensuring compliance with relevant laws and regulations.

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